Homeowners associations (HOAs) across the country are increasingly confronting a difficult choice: fund necessary repairs through a special assessment or delay maintenance and risk even costlier emergencies. But what happens when a special assessment fails because owners cannot pay their share on short notice? According to Jack Miller, principal at Gelt Financial, most boards are unaware that borrowing against future dues is even an option until they are already stuck.
Gelt Financial, a national private lender and distressed debt buyer with over 37 years of experience, is one of the few lenders that finances associations directly. Miller says this niche has almost no competition because most lenders are not set up to underwrite such deals. Unlike a mortgage on an individual property, an association loan is not secured by real estate. There is no traditional collateral and no personal guarantees from board members or owners. Instead, the loan is secured by the association’s ability to pass a special assessment or raise condo dues to repay it over time. This means the association borrows against its own income stream, not the building itself.
Once the loan closes, the board typically still passes an assessment, but instead of collecting a large lump sum from every owner at once, repayment is spread out and the immediate repair gets funded right away. This approach can be a lifeline for associations facing urgent repairs, such as roof leaks or failed windows, which might otherwise escalate into emergencies.
The biggest obstacle Miller sees is not financial but personal. He described a recent case involving two elderly board members, one 88 and one 92, who served as president and treasurer of a 40 to 50 unit association. Both were retired schoolteachers and reluctant to raise dues because they knew every homeowner personally and did not want to ask neighbors for more money. Miller’s response was direct: if you own your home, repairs need to get done regardless of how uncomfortable the conversation is. Boards that avoid raising dues often end up with a bigger problem later when a planned repair becomes an emergency.
Not every association needs outside financing. Sometimes individual owners fund their own share of a special assessment directly rather than paying a lender’s rate. Miller acknowledged that one owner might reasonably ask why they should pay Gelt’s rate when they could just cover their portion themselves. For owners who can afford that, it is a fair question. However, private lending makes the most sense when the board needs the repair funded now and cannot wait for a lump sum assessment to clear.
Gelt is not able to help every association. Deals involving existing debt on the property typically do not work, since Gelt wants to be the first lender in. Associations that have let a problem grow too large sometimes need more repair work than makes economic sense to finance. Miller’s advice to boards is to get ahead of the timeline rather than wait for a crisis. Associations should plan major repairs a year in advance and build relationships with banks and other traditional lenders first, since that financing is typically cheaper. Private lending exists as the option for boards that have already tried that route and still need a way to get the work done.
For more information on Gelt Financial’s lending solutions, visit Gelt Financial. The company operates in 37 states and provides bridge financing, foreclosure bailout loans, and non-performing loan acquisitions for real estate investors, operators, and institutions.
This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions. Disclosure: Individuals or companies mentioned may have a commercial relationship with KeyCrew.
